Sunday - July 24, 2011

Buy Your Tickets Now?

Airlines are tossing consumers aside and grabbing the benefit of lower federal taxes on travel tickets.

By Saturday night, nearly all the major U.S. airlines had raised fares to offset taxes that expired the night before.

That means instead of passing along the savings, the airlines are pocketing the money while customers pay the same amount as before.

American, United, Continental, Delta, US Airways, Southwest, AirTran and JetBlue all raised fares, although details sometimes differed. Most of the increases were around 7.5 percent.

For consumers who wanted to shop around, only a few airlines were still passing the tax break on to passengers Saturday night, including Virgin America, Frontier Airlines and Alaska Airlines.

The expiring taxes can total $25 or more on a typical $300 round-trip ticket. They died after midnight Friday night when Congress failed to pass legislation to keep the Federal Aviation Administration running.

That gave airlines a choice: They could do nothing — and pass the savings to customers — or grab some of the money themselves.

“We adjusted prices so the bottom-line price of a ticket remains the same as it was before … expiration of federal excise taxes,” said American spokesman Tim Smith. US Airways spokesman John McDonald said much the same thing — passengers will pay the same amount for a ticket as they did before the taxes expired.

They declined to say whether the increases would be rescinded if Congress revives the travel taxes.

Several federal airline-ticket taxes expired when Congress adjourned for the weekend without passing FAA legislation. Lawmakers couldn’t break a stalemate over a Republican proposal to make it harder for airline and railroad workers to unionize.

Air traffic controllers stayed on the job, but thousands of other FAA employees were likely to be furloughed.

Airlines stopped collecting a 7.5 percent ticket tax, a separate excise tax of $3.70 per takeoff and landing, and other taxes. Those add up to about $32 on a round-trip itinerary with base fare of $240 and one stop in each direction.

Other government fees for security and local airport projects are still being collected. They boost the final cost of that $240 base-fare ticket to $300.

Passengers who bought tickets before this weekend but travel during the FAA shutdown could be entitled to a refund of the taxes that they paid, said Treasury Department spokeswoman Sandra Salstrom. She said it’s unclear whether the government can keep taxes for travel at a time when it doesn’t have authority to collect the money.

Some airlines that didn’t raise fares sought to turn the controversy to their advantage. Spirit Airlines said it would pass tax savings on to consumers while rivals “have not been so generous.” It warned travelers that Congress could end the tax holiday at any time, so book a flight quickly.

Virgin America hawked tickets with the slogan, “Evade taxes. Take flight.” For a September trip between Dallas and San Francisco, Virgin America was $7 to $24 cheaper than United, Continental and American.

The Transportation Department says it will lose $200 million a week until Congress restores the taxes. J.P. Morgan analyst Jamie Baker said airlines could take in an extra $25 million a day by raising fares during the tax holiday. That’s a tempting sum for airlines that have struggled against high jet fuel costs for most of the last three years.

Airline tickets have had several price increases so far this year, pretty much across the boards. For a deregulated industry that competes so hard that many airlines have gone out of business in the past 3 decades since deregulation, they sure seem to be able to march in lockstep at a moment’s notice when they feel like it. Go figure.

The last time one of these air travel taxes expired, most airlines passed the savings on to the customers. This time, nada. Whatever happened to that trickle down economic theory? I think it’s leaving a yellow puddle on the floor.

Personally, this gives me incentive to hope that a budget impasse continues in DC for months. I just bought tickets for a late fall vacation, and I wouldn’t mind being able to get a refund of some of the tax money.

Posted by Drew458     on 07/24/2011 at 02:21 PM   
Filed Under: • planes, trains, tanks, ships, machines, automobiles • Taxes •  
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